Government Pension versus 401k: Why I should have been a fireman…

Government Pension versus 401k or IRA: Why I should have been a fireman…

· Add Your Comments

Fireman versus Financier

Every kid has dreams of what they wanted to be when growing up. My first dream was to be a fireman. I think it’s very heroic to save other people. By as I grew, my feelings changed from fireman to financier. And I always thought if you followed money, you will find it. But as an entrepreneur, it doesn’t work that way. It’s hard to hold onto what you have. So it got me to thinking about what if I had become a fireman, would my life be financially better? Surprisingly, yes….

Notwithstanding the physical stress a fireman’s body experiences, the dangers of the job or the emotional roller coaster from seeing difficult situations, firemen (as well as other government workers) can actually do a lot better than we would think. Take for instance Danny, a friend who became a South Florida fireman 15 years ago. According to his pension, Danny is eligible to receive 100% of his salary after completing 25 years of service.

Apples to Apples Comparison

Danny said that he expects to retire at age 46 and will receive (as per his pension) $60,000 every year for the rest of his life. That means if he lives until he is 76 and never works again, Danny will receive this amount for the next 30 years, which will total $1.8 million.

Let’s compare what the average Joe would have to do to save $1.8 million. To accomplish this, Joe (the average one, not the real one) will have to put away $200 every month and must get a challenging 12.5% return on average annually to compete with Danny (just so you know, the S+P 500 index got the exact same average return from 1980 to 2005 according to investment guru John Bogle). Using our savings calculator, it would take Joe 36 years and 8 months to achieve $1.8 million. Let’s see the breakdown if both Danny and Joe die at age 76.

Tale of the Tape

Danny Joe

Age started working 21 21

Age retired 46 (25 yrs) 57 (36 yrs of investing)

Age at time of death 76 76

Retirement years left 30 years 19 years

It’s obvious that Danny’s efforts pay off handsomely and in a shorter period of time. While I am not advocating quitting your job to work for the government (like they need more people like you), assuring a successful retirement is not always based on how high of a salary you can get. There are plenty of options to get to retirement without thinking you need to make enough to garner $2 million in savings. If you don’t happen to be in a position of working for the government, funding your retirement by contributing $200 a month and investing right can also provide your road to wealth.

The point of this story is to not get disappointed from what you can’t earn, but to think creatively on how you can make it happen. Remember, you are not saving $1 million to have $1 million. You are saving $1 million to have income for the rest of your life, no matter if it comes from a government pension or your personal portfolio.

Like what you read, share here: